An Adult Slowdown? 2

John Scura
In part one, we looked at market saturation, newbies and the survival game. In today's conclusion, we'll look at getting comfortable, building a better mousetrap, creativity and beyond:

Getting Comfortable
"When the commercial companies that sell DVDs begin to acknowledge the shift toward the Internet," Steele says, "you're going to see the amateur producers on the Internet really begin to fall away. Consumers who have been buying product made by big-name companies will look for their product on the Internet, and that will cut away from the mom-and-pop amateur productions that have fueled the Internet up to now."

And yet new websites continue to proliferate to the point where, in the words of Falcon's Tucker, "Opening another adult company online is like opening another Starbucks. Why bother? There are new affiliate programs popping up all the time, but most of them don't survive. Usually, it takes about five years to really get comfortable — I mean making real money. The other thing is that this is an industry built on relationships, and it takes time to develop those relationships."

Dumas reflects back on the 1990s, when the online adult world was like the Wild West.

"Back in 1998, we were all rocking and rolling," Dumas says, "because there was only a limited amount of websites and affiliate programs out there. Now the guy who mows my lawn has an affiliate program. Everybody's got an affiliate program. Because of companies like MPA3, Paycom or CCBill, they can get a merchant account set up and boom — they're in business. You can literally be in business in five days, depending on how fast you can build a front end and a members area. It used to be that it would probably cost you $1 million to start an affiliate program because of the lag in payments from the processor. Now the barriers to entry are so minimal that almost anybody can get into it with almost no money down."

A Better Mousetrap
OK, we've established that there is, indeed, a glut of competition in today's adult marketplace, both offline and online. Now what? How does a production company or a website stand out from the herd? What do you do to attract consumers to your DVDs and surfers to your websites?

So far, the answer both online and offline has been: build a better mousetrap. In other words, improve the quality of your product.

"The sites I see continuing to grow are the quality ones," Cadwell says, "the ones that have something original to offer. They go out and spend extra money taking quality photography and finding good locations, and not all in some guy's backyard. There are lots of guys who just put up a website and think that buying a bunch of pictures from whomever is enough to do it. Everybody has the same pictures up."

Video Secrets has come up with a twist in its ability to stand apart online by offering live entertainment. Company president, Greg Clayman, believes this niche is just in its infancy and has great expectations for it.

"Our plans are to be in every hotel and motel across the world," he says. "Guests in these places will be able to direct their own shows live. That's within the next five years. We really see the demand increasing in the live video chat business."

The move toward higher quality is even evident in some recent DVD releases, with production companies breaking budget records with movies like "Pirates" by Digital Playground and "Dark Angels 2" by New Sensations. This, too, is an attempt to stand out and draw in customers. But it also has required some new strategies.

Using the example of the recent release of "Britney Rears," Mullen stresses how he managed to stand out from the crowd.

"We hit people over the head with the product," he says. "We attacked mainstream radio, which is very expensive. We got lucky when 'The Howard Stern Show' jumped all over the product. But it didn't just happen. We were very aggressive in marketing the product."

But by spending more money on productions and marketing, companies are taking bigger risks and even facing the possibility of losing money — something that hasn't really been part of the adult industry until up to now. Mullen believes the risk is well worth taking.

"You stand out by producing high-quality product with a story now," he says. "It's more expensive, and there's a bigger risk because of that."

Get Creative
Falcon's Tucker says that sometimes a little creativity is all it takes to stay on top in today's market.

"You can stick a girl on a couch and have a guy have sex with her, but it's a really flat situation," he says. "There's no depth to it. Put that same couple outside in the woods, or in a studio with a full set, and now you've got something. That's what has allowed us to stay competitive for 15 years."

In today's crowded adult market, however, being competitive in the past is no assurance that you'll remain so in the future. Change keeps accelerating in electronics, with unpredictable effects on the Internet and its array of businesses. The successful companies of tomorrow need the ability now to see around the bend and take steps to stay ahead of that curve.

Mike Hawk, co-founder of SmashBucks, believes that the trend toward community sites — already in evidence — is the great wave of the future.

"Technology is changing in the way movies are bought and captured," he says. "It's becoming more micro'ed out in terms of users going after exactly what they want. You see it with YouTube, PornoTube and MySpace. The old style of MGP is becoming an archaic way of doing business. Surfers are migrating to user-driven network systems and communities and are starting to trade among themselves and be more refined in their tastes. Surfers today want to be in a community. PornoTube is like the old days when we used to pass around links to funny videos. This is the future. It's all about community, and the more you involve the surfer, the more they're going to give you love on traffic back."

Video Secrets' Clayman has already laid the groundwork for his company's future plunge into live entertainment, which he believes will be boosted by the approaching boom in interactive media outlets.

"You'll see the integration of your computer with your TV," Clayman predicts. "You'll be able to go to a certain channel and from your remote keyboard, you'll be able to get the Internet on your TV. All your TV channels can become interactive — very similar to the new Xbox 360 Live, where you can actually play golf with other people. You'll be able to talk and interact with other people through your TV, from gaming to having a model perform for you live, in the privacy of your own home."

This media revolution also will impact the movie production companies by multiplying the available delivery systems. Tucker sees a day soon when people will watch movies on iPod, PSP, cellphones and car video screens.

But the future is definitely not going to be all hearts and flowers — especially for the DVD industry.

"We all have to prepare for new delivery platforms," Mullen says, "because the DVD is going to be dead in a certain amount of years."

Adapt Or Die
And so the age-old truism — adapt or die — is clearly emblazoned on the current crowded marketplace of adult entertainment. A few of its forward-thinking members have some sage advice for those who wish to ride the crest of the new wave.

"The times are changing, and if you don't change with them, you're going to be out," SmashBuck's Hawk says. "DVD will go the way of eight-track. Everything will go digital, and since we're the purveyors of the digital marketplace, we have to be prepared for that. Those who can't do that are going to be lost."

Dumas agrees.

"The people who provide the best content, have the best marketing strategies and who provide the best customer service will be the ones who survive," Dumas says. "Failing to do this is why the graveyard of adult companies is growing every day."